3WWW.ECONOMICTIMES.COM
Sobia Khan & Kailash Babar
Bengaluru | Mumbai: Finance minister Arun Jaitley proposed to
make the path slightly easier for Real Estate Investment Trusts
(REITs) to list, allowing pass-through on rental income and doing
away with capital gains tax issue for the sponsors. However, the
capital gains tax will be applicable for direct transfer of real
estate to these trusts.
REITS are vehicles for real estate companies to sell down
income-pro-ducing assets in the market to inves-tors and use the
cash to invest in oth-er projects. If an asset is directly owned by
the trust, its income will be taxed at the unit holders hand and
the trust need not pay tax. A domestic investor will be taxed at
10% for this while a foreign investor will pay tax as per Indias
tax treaty with that country. If the asset is held through a
special purpose vehicle and not di-rectly, dividend distribution
tax (DDT) will be applicable. The indus-try was seeking removal of
DDT, but the FM has not accepted this request.
The move may boost REIT listing in India, allowing faster and
smoother exits to investors in a sector hit by funding constraints.
REITs own properties, and their rental income is distributed among
investors. In de-veloped markets, REITs enjoy special tax
considerations. For investors, they offer high dividend, along with
a liquid option, to invest in real estate.
The government, in its Budget last year, had unveiled proposals
to en-courage REITs and Infrastructure Investments Trusts. While
several developers have shown interest, no REIT is listed in India,
partly because of lack of clarity on taxation.
A large quantum of funds is locked up in various completed
projects which need to be released to facilitate new infrastructure
projects to take off, Jaitley said on Saturday while presenting the
Budget. The sponsors can list REITs by paying securities
transaction tax, he said.
Some of the developers who may benefit are DLF, Embassy Property
Developments, RMZ Corp, K Raheja Corp and Unitech.
Promoter-level capital gains tax on migration to REITs has been
ration-alised, which should kick-start the REIT industry, although
minimum alternate tax on the migration to dis-courage promoters may
immediately initiate the process, said Bhairav Dalal, associate
director, tax & regu-latory, PwC India.
LISTING GETS EASIER
Tax on REIT Income Passes to Investors
Budget 2015 Rebooting IndiaIMPACT ON MARKETS
FMC-Sebi Was Just Waiting to HappenA NEW STAR IS BORN Merger
proposal to add teeth to commodities market regulation, OSD to
oversee transition
Single Cap May Not Boost Foreign Flows
[email protected]
Mumbai: The decision to have a common sectoral cap for foreign
portfolio investment (FPI) and foreign direct investment (FDI) will
make regulations simpler for investors, but may not lead to a rise
in inflows, industry track-ers say.
FM Arun Jaitley on Saturday announced that the government would
merge the caps for FPI in-vestments with FDI. I propose to do away
with the distinction between different types of for-eign
investments, especially be-tween foreign portfolio invest-ments and
foreign direct investments, and replace them with composite caps,
he said.
This means that if the cap on
investment in a sector is 49%, both FPI and FDI combined can-not
cross that limit. This is more of a sentimental boost, as it brings
clarity on the otherwise ambiguous foreign investment cap, but may
not lead to any tre-mendous boost in the actual in-vestments, said
Dev Raj Singh, ED, tax and regulatory services, Ernst and Young,
India.
The biggest beneficiary would be the power and the commodi-ties
sectors. Consolidating FDI and foreign portfolio invest-ment (FPI)
based on percentage threshold will be helpful too, as will be the
clarity on taxation. Attempts at aligning foreign investors and
portfolio manag-ers is a big positive, said Dhanpal Jhaveri,
managing partner, PE, Everstone Capital.
[email protected]
Mumbai: The Modi governments second Budget, which had aroused
enormous expectations among mar-ket participants, triggered bouts
of volatility on Dalal Street on Saturday. But the benchmark
indi-ces eventually closed in the green, after the government
announced various investment-friendly meas-ures, including a delay
in the imple-mentation of tax avoidance rules for foreign investors
and cut in corpo-rate tax rates.
The benchmark index, BSE Sensex gained 141 points, or 0.48%, to
close at 29,361 on Saturday. The index swung as much as 678 points
intra-day. The broader index, NSE Nifty, rose 57 points, or 0.65%,
to end at 8,901 points, led by private banking, pharma, and auto
stocks.
ITC, an index major, was the spoil-sport as the stock dragged
down the index performance, falling 8.27% to `361 as excise duty on
cigarettes was hiked by 15-25%.
The volatility index NSE India VIX also dropped sharply by 13.3%
to 16.97 as the uncertainty sur-rounding the Union Budget was
over. (Some) market participants were disappointed as no
specific in-centives were given to any particu-lar sector or stocks
in the Budget. Overall, the undertone was very positive. The
government has taken strong steps to boost investment, said U R
Bhat, MD of Dalton Capital.
The Bank Nifty surged 691 points, or 3.62%, to close at 19,765
led by pri-vate banks such as Axis Bank, IndusInd Bank, Yes Bank
and Kotak
Bank, which rose 5-9%, after the Budget proposed doing away with
the distinction between different types of overseas investments,
par-ticularly foreign portfolio invest-ments (FPI) and foreign
direct in-vestments (FDI). A composite cap for foreign investment
will be put in place, the finance minister said.
A very good Budget as there is an all-round push for growth. I
have the feeling that the finance minister is
listening to the suggestions about the problems people are
facing. The promise to reduce corporate tax from 30% to 25% over
the next four years is a huge thing, said Raamdeo Agrawal, MD and
co-founder of Motilal Oswal Financial Services.
Among other gainers, Sun Pharma and Dr Reddys rose by 3-3.5%
after the government allotted `33,152 crore to the health sector.
Tata Motors rose 3% after the Budget in-creased Customs duty to 40%
from 10% for commercial vehicles.
Amar Ambani, head of research at IIFL, said: The GAAR
applicability deferment by two years and the com-mitment to
prospective taxation would certainly win the confidence of foreign
investors.
Among the key positive takea-ways from the Budget are the
plug-and-play model for ultra mega power projects, merging of FMC
with Sebi, launch of gold sovereign bonds, a comprehensive
bankrupt-cy law that now brings NBFCs in its fold, divestment of
loss-making units, the proposed move towards universal social
security, tangible measures to arrest the black mon-ey menace and
the April 2016 GST target launch.
D St Blows Hot & Cold; Most Players Believe Theres a Reason
to Cheer Benchmark indices end in positive territory; GAAR
deferral, corporate tax cut lift mood
Reena Zachariah & Ram Sahgal
The gover n ment on Saturday proposed the merger of commodity
futures market regula-tor Forward Markets
Commission (FMC) with stock market watchdog Securities and
Exchange Board of India (Sebi), a move intended to strengthen
regu-lation of the 11-year commodities market, facilitate domestic
and for-eign institutional participation and launch of new products
like options.
The merger of FMC with Sebi will strengthen regulation of
commod-ity forward markets and reduce wild speculation, said
finance minister Arun Jaitley, in his Budget speech.
In response to the announcement,
MCX, the countrys largest commod-ity bourse, rose 13% to `
1,191.65 on Saturday. This is a game changer, said Sameer Shah, MD
& CEO of NCDEX, the countrys largest farm futures commodity
exchange, which is currently regulated by FMC.
The entire transition, to be over-seen by an officer on special
duty ap-pointed by the government, will take place over the next
six months to one year. Initially, the FCRA (Forward Contracts
Regulation Act) would be repealed and the definition of securi-ties
under the Securities Contracts (Regulation) Act and the Sebi Act
would be amended to include com-modity derivatives.
According to legal experts, out-going FMC chairman Ramesh
Abhishek, whose extended term ends in April, could be asked to
con-
tinue. He was supposed to be suc-ceeded by T V Somanathan, an
IAS officer of the 1987 Tamil Nadu cadre. Somanathans papers are
with the Prime Ministers Office (PMO) for
clearance, accord-ing to sources.
All the employees of FMC exclud-ing its members would be either
transferred to the central govern-ment or Sebi.
A senior govern-ment official said the government
could consider making FMC a de-partment of Sebi. Experience of
FMC in handling commodities fu-tures contract will come in handy
for Sebi, he added.
This is a very good decision which should have happened before
the NSEL scam. In fact, it is a delayed decision because originally
it was initiated in the Budget of 2004. But unfortunately, it didnt
happen earlier, said G N Bajpai, former chairman of Sebi. This will
lead to consolidation and more effective regulation of the
derivatives mar-ket, he added.
It (merger) was inevitable after the recent fiasco in the
commodi-ties markets. It was just a matter of timing. We have
certain discipline in the equities market because of which we have
no default. We need to have some basic discipline in the
commodities market, too, said a former senior Sebi official. Also,
some of the derivatives products are similar in both the
markets.
The senior government official quoted above said Sebi would find
it easier to regulate trading of non-farm products like gold,
silver, crude oil and base metals, of which the latter two are
traded in the paper form and are non-de-liverable. However,
regulation of futures of farm commodities would be a challenge. The
government proposes inserting a new section Section 28A in FCRA,
which will allow all recognised associa-tions under it to be
recognised as stock exchanges under the SCRA.
The government has also pro-posed to insert new sections 29A and
29B, which deal in repealing of FCRA and transfer of FMC to Sebi,
respectively. All legal actions ini-tiated by FMC would be
continued and enforced by Sebi.
The merger is in line with the sugges-tions made by the FSLRC
headed by former Justice B N Srikrishna
Sectors on Budget DayBSE INDEX CLOSING % CHG
BEST PERFORMERSBANKEX 22572.97 3.27
HEALTHCARE 15854.60 2.03
AUTO 19982.74 1.08
OIL & GAS 9685.68 0.87
IT 11969.48 0.76WORST PERFORMERS
FMCG 8222.38 -4.09
CONS DURABLES 10388.14 -2.05
POWER 2269.06 -1.15
REALTY 1821.92 -0.90
CAPITAL GOODS 17779.48 -0.26
Source: ETIG Database
MARKET BEHAVIOUR HAS BEEN
QUITE LOGICAL
Regulatory WrapProducts traded on stock market include equity
cash & derivatives, indices, currency and interest rate
derivatives, ETFs..
Products traded on commodity exchanges only futures in farm and
non-farm products like gold, silver & crude oil
FMC overseen by Dept of Economic Affairs, Sebi is autonomous
Turnover of NSE & BSE (equity, cash & derivatives)`693.4
LAKH CRin Apr 1, 2014-Feb 15, 2015
Commexes MCX & NCDEXs`53.9 LAKH CR
Vs
